Magical Dow 30000
Magical 30000 for the Dow. I hope you had a great Thanksgiving! There were three interesting events this past week. First, the Dow Jones Industrial Averages or DJIA closed above 30,000 this past week on Tuesday, November 24th. By Thursday the Dow had fallen below 30,000 again, but it is just under that value at 29,910 at end of the week. Second, the Macy’s Thanksgiving Day Parade was very different this year. It still occurred but without the crowds. Third, we brined and smoked our first turkey this year. For the first time, everyone liked it since the turkey was not too dry. I think that cooking over low heat for an extended time locks in the favor and moisture. I recommend this approach. My kids liked it and they are pretty tough critics when it comes to good food and bad food. They hold no punches.
What Does Dow 30000 Mean is it Truly Magical?
What does Dow 30000 mean and is it a magical number? The Dow went below 19,000 in mid-March as the coronavirus pandemic took hold and spread across the country. But after bouncing back to over 22,000 at end of March the Dow has marched forward to over that magical 30,000 threshold. So, from that perspective, it has been a several good months in terms of the stock market. But what does this really mean and is it significant?
The Dow 30 finished at over 10,000 on March 29, 1999. This was in the midst of the dot-com boom. The Dow reached a peak of 11,750 in January 2000 before the bear market took hold and the Dow went back down to 7,197 in late 2002. It took 28,313 trading days for the Dow to go over 10,000 for inception of the index. The Dow went over 20,000 on January 25, 2017. To make the next 10,000 increment it took only 4,486 trading days. For the Dow to clear the magical 30000 it took another 966 trading days. I would argue though that the Dow clearing any of these numbers though is not that significant since the Dow is not a broad index and thus does not represent the whole market.
Currently, many of the stocks in the Dow 30 are trading close to their 52-week high. In fact, there are only a few stocks that are trading near their 52-week low. Of the 30 Dow stocks really only Intel (INTC), Merck (MRK), Cisco (CSCO), and Walgreens Boots Alliance (WBA) are trading anywhere near their 52-week lows. Interestingly, WBA has been one of the worst performing Dow 30 stocks in 2019 and 2020. Some of these stocks are on the Dogs of the Dow 2020 list. A few other stocks are reasonably valued. But the Dow 30 has changed over the years and tech stocks, certain retail stocks, and financial stocks are trading near their highs for the most part and continue to push higher in 2020.
Why Are Stocks Going Higher?
The reasons for this are not surprising. First, the U.S. economy is doing surprisingly well despite the pandemic. Some of this was due to a record stimulus that was over 10% of the U.S. GDP in a very short period of time. The Fed and Chairman Powell are also being very supportive of the economy with low Federal Funds rate of 0% to 0.25% at least for another year or two. This is arguably a bullish signal especially when compared to the S&P 500 dividend yield, which has been between 1.7% and 2.0% for much of 2020. The ratio of S&P 500 dividend yield to the 10-year Treasury yield spiked in mid-March 2020. The first time that the ratio went over 1.0 since 1970 was in early-2009 and that was a good time to buy stocks as seen in the chart below. Hence, many investors view this ratio as a bullish or bearish indicator.
Does the Magical Dow 30000 Mean Too Much Optimism?
There is nothing magical about Dow 30000 though. But it likely does indicate that investors are optimistic, maybe too optimistic. This is partly due to positive headline news about vaccines, likely resolution of the election, the possibility of political gridlock, and the potential of further stimulus. That said, my sense is that there is too much optimism in the market right now. I am not sure if we are in bubble. But there is a general fear of missing out as the market makes new highs and earnings multiples are over 30X. You can also see below that the CBOE VIX has essentially returned to its long-term average. The Fear and Greed Index is also in Extreme Greed. That said, there is always some future unknown event or Black Swan event that will impact the stock market. Hence, it is prudent to stay attuned to the downside and manage risk.
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Dividend Increases and Reinstatements
Northeast Indiana Bancorp (NIDB) declared a special dividend of $1.00 per share. This is the sixth year in a row the bank has declared a special dividend. NIDB is a Dividend Champion.
National Beverage (FIZZ) declared a special dividend of $3.00 per share.
Becton, Dickinson and Company (BDX) hiked the dividend 5.1% to $0.83 per share from $0.79 per share. BDX has raised the dividend for 49 consecutive years. BDX is a Dividend Champion and Dividend Aristocrat.
Hingham Institution for Savings raised the dividend 4.4% to $0.47 per share from $0.45 per share. Hingham also declared a special dividend of $0.70 per share. Hingham is a Dividend Contender having raised the dividend for 13 years in a row.
The York Water Company increased the dividend 4% to $0.1874 per share from $0.1802 per share. York has the longest streak of paying a dividend in the U.S. at over 200 years. The stock is also a Dividend Contender having raised the dividend for 24 years straight.
Hormel Foods hiked the dividend 5.4% to $0.245 per share from $0.2325 per share. This is the 55th consecutive increase. Hormel has paid a quarterly dividend since 1928. The stock is a Dividend King, Dividend Champion, and Dividend Aristocrat.
Texas Pacific Land Trust declared a special dividend of $10 per share.
Coronavirus Dividend Cuts and Suspensions List
I updated my coronavirus dividend cuts and suspensions list this past Wednesday. The number of companies on the list has risen to 476. We are well over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic. The number of companies on the list continues to rise each week.
Two new companies were added to the list in the past week. These were United Guardian (UG) and United Fire Group (UFCS).
I included eight companies that I had previously missed. The eight companies that I previously missed were Old Dominion Freight Line (ODFL), Haverty Furniture Companies (HVT), Interface (TILE), Extended Stay America (STAY), Crawford & Company (CRD.A), Tekla Healthcare Investors (HQH), Red Rock Resorts (RRR), and PBF Logistics LP (PBFX).
Market Indices – Magical 30000
Dow Jones Industrial Averages (DJIA): 29,910 (+0.13%)
NASDAQ: 12,206 (+0.92%)
S&P 500: 3,638 (+0.24%)
The S&P 500 is trading at a price-to-earnings ratio of 36.8X and the Schiller P/E Ratio is at about 33.2X. These two metrics are up this past week. Note that the long-term means of these two ratios are 15.8X and 16.7X, respectively. I continue to believe that the market is overvalued at this point. I personally view anything over 30X as overvalued.
S&P 500 PE Ratio
Shiller PE Ratio
Stock Market Volatility – CBOE VIX
The CBOE VIX measuring volatility was down with last week at 20.84 at end of this past week. This is the lowest level since the pandemic started. The long-term average is approximately 19 to 20. So, at this point we are just slightly above the long-term average and trending down.
Fear & Greed Index
I also track the Fear & Greed Index. There are seven indicators in the index. They are Put and Call Options, Junk Bond Demand, Market Momentum, Market Volatility, Stock Price Strength, Stock Price Breadth, and Safe Haven Demand.
Put and Call Options, Safe Haven Demand, Stock Price Strength, Stock Price Breadth, and Market Momentum are signaling Greed. Put option volumes are 70.61% behind call option volumes over the past five trading days. This is an extremely low level. Stocks are outperforming bonds by 10.44% over the last 20 trading days. This is at the higher end over the past two years. The number of stocks hitting 52-week highs is at the upper end of the scale versus those hitting 52-week lows. The S&P 500 is 9.1% over its 125-day average. This is above the normal range over the past two years.
Junk Bond Demand is indicating Greed. Investors are accepting 2.13% yield over investment grade corporate bonds. This is about average over the past two years.
Market Volatility is set at Neutral. The CBOE VIX reading of 20.84 is a neutral reading.
The number of weekly new unemployment claims were up with last week at 778,000. This is up 30,000 from last week’s revised numbers. We are now below 800,000 claims consistently but have headed up over the past two weeks. But for some perspective, one-year ago weekly unemployment claims were only about 211,000. Currently we are 3X – 4X the normal level. The seasonally adjusted insured unemployment rate was 4.1%.
The ten states with the highest unemployment rates were California (7.9), Hawaii (7.1), Nevada (6.9), the Virgin Islands (6.9), Alaska (6.3), Massachusetts (6.1), Illinois (5.9), Georgia (5.8), District of Columbia (5.6), and New Mexico (5.5).
No new press releases this past week due to Thanksgiving.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.